What do you get when the exciting world of crypto meets gaming? GameFi is a potentially lucrative innovation that’s impacting both gamers and investors. This phenomenon is on the verge of gaining widespread attention beyond hardcore crypto and gaming enthusiasts. To ensure our readers have all the info to get the most out of GameFi, we have put together this detailed article on this unique digital experience.
The Basics of GameFi
GameFi, a combination of the words “game” and “finance,” involves players being rewarded for the time spent in gameplay. The games in GameFi are based on blockchain technology, and the model is known as play-to-earn (P2E), explained in detail further below. The earnings can be in the form of tokens, avatars, virtual land, upgrades, or other items.
The significant element here is that the integration of non-fungible tokens (NFTs) and decentralized finance (DeFi) allows players to transfer the assets collected within one game to other platforms and games. Thus, gamers can monetize their in-game earnings by selling or trading them. Plus, depending on the game, there are options to earn passive income by lending, renting, and staking assets.
Note that some experts also extend the purview of GameFi to include the gamification of DeFi platforms to make financial services more engaging. While that is not entirely incorrect, this article largely focuses on the system we defined earlier—games that use elements of DeFi for financial incentives—because of the much more rapid developments occurring in this area.
According to industry reports, established gaming companies like EA and Ubisoft have already entered the blockchain gaming space. Moreover, the number of GameFi projects has continued to rise steadily, reaching over 1,500 by mid-2022, backed by billions of dollars in funding.
Components of GameFi
GameFi is an interesting mix of advanced gaming design and decentralized finance. Broadly speaking, it comprises the following components:
Play-to-Earn
Traditional gaming models like pay-to-play involve one-way payments—the player pays the game developer to gain access, buy assets, unlock additional features, and so on. Players may earn in-game assets or currency, but these are of no value outside the game.
Thus, despite hours (or months?) of play, there are no real-world monetary benefits. Of course, players can compete in well-paying gaming competitions or broadcast on social media, but these are indirect benefits available to a few.
However, in the P2E model, players can win economic rewards with real-world significance. These rewards may be directly in the form of tokens or assets tradable on an NFT marketplace. How the rewards are won may also vary from one game to another. So, it could be for completing tasks, designing variables, developing mini-games, or building infrastructure within the game. The key is that the more you play, the more assets of value you can amass.
It is critical to note that while many P2E blockchain games are free to play, a sizeable number do require an initial investment to begin playing. Also, positive returns are not given. The rewards you win are part of a volatile ecosystem, so their value may drop below your initial investment.
Finally, not all games are skill-based. Luck is a component in several games, meaning you could lose some or all of your investment. There is a wide range of games available on GameFi platforms, so you must do your research and get into games that match your risk appetite.
Blockchain
P2E is not an entirely new concept. What makes P2E in GameFi exciting is the blockchain technology that forms its backbone. Blockchain’s distributed ledgers ensure the transparent and fair transactions required for such games. Player ownership also becomes possible because of blockchain technology. The Ethereum network has been used to build most blockchain games until now, but other protocols like BNB Smart Chain, Polkadot, Solana, Harmony, and Polygon are also being used.
NFTs
NFTs or non-fungible tokens are unique digital identifiers recorded in a blockchain to prevent duplication, substitution, or subdivision. The assets won on GameFi platforms are usually in the form of NFTs that can be traded for other NFTs, tokens, or fiat currency. Since the assets are NFTs, players know that these assets are unique and authentic.
DeFi
Decentralized finance is one more factor that makes GameFi buzzworthy. Several GameFi projects offer DeFi products and services, including staking, yield farming, and liquidity mining.
Moreover, unlike traditional video games, where the assets are eventually owned by the developer, GameFi’s in-game assets are owned by players. The entire game marketplace is managed and governed by the player community. Even many of the decisions regarding game development are often taken by players who have reached a certain level in the game. This decentralized nature eliminates the need for a central server or control and lowers the risk of hacking or fraud.
Benefits of GameFi
There are several valid reasons why GameFi has been a source of excitement for gamers and tech enthusiasts. Let’s look at some of the ways it can benefit users if done right.
- Real income - We’ve covered in some detail how a fundamental aspect of GameFi is the chance for players to monetize their time. Traditionally, only game developers or gaming companies earn money through gaming. However, GameFi promises a new era of financial inclusion for the wider gaming community.
- Asset ownership - Since the assets won in GameFi games are NFTs, gamers have sole ownership over them. No one else has a say in what gamers do with the NFTs they have won. Moreover, since these NFTs are tradable outside the game, even if a game changes or shuts down, the gamer’s earnings continue to have value.
- Decentralized control - GameFi is based on decentralized gaming, meaning the community controls many of the game-related decisions. This is done through governance tokens, whose holders are involved in decisions on how the game develops, the kind of assets created, and more. This is a more egalitarian model compared to the traditional model, where a major gaming firm often takes all decisions.
- Boost to crypto adoption - Experience from several sectors has proven that gamification drives consumer engagement. Therefore, it’s justifiable to expect that GameFi, supported by the right infrastructure and policies, will attract many users who may have given crypto and digital assets a pass until now.
- High Risk - GameFi projects tend to be highly speculative and high risk. This is because they are often based on new or untested technology, and the gaming industry can be volatile.
- Limited Adoption - While GameFi has gained some attention in recent years, it is still a niche market. This means that the number of people using GameFi platforms is relatively low, which can limit the potential for growth.
Of course, GameFi’s wide adoption hinges on several factors, so we cannot take for granted that blockchain gaming will truly take off. For instance, while substantial funding is still coming into the sector, there are signs of slowing down. Despite the hype, many games may not succeed because of issues like complicated gameplay or a lack of seamless conversion of in-game assets into other tokens or fiat currency. The latter is seen in some jurisdictions, especially in Asia, where there are restrictions on converting digital assets into fiat currency.
Similarly, it is never guaranteed that all GameFi users will see monetary benefits. As described earlier, careful research on users’ part is vital before investing time or money to avoid losses.
Getting Started with GameFi
The GameFi ecosystem is seeing new titles added almost daily, with every game having its own set of rules and gameplay. However, there are a few common steps that most users would follow to begin playing. Let’s look at these:
Step 1: Do basic research
Step 2: Set up your crypto wallet
Step 3: Link your wallet to the game
Step 4: Understand the game rules
Popular GameFi Titles
There are so many GameFi titles already across different blockchain networks that picking a representative set is impossible. The ones below are not necessarily those with the largest market caps, but these are popular games that showcase the range of gameplay available to interest all types of users.
Axie Infinity
Developed by Vietnam-based studio Sky Mavis, Axie Infinity is considered the pioneer of GameFi and has one of the largest market caps among blockchain games. The gameplay involves breeding, collecting, battling, and trading Axies, a set of in-game characters. To begin playing, users must purchase three Axies.
Players can earn two Ethereum-based cryptocurrencies: SLP and AXS. SLP is earned for fighting in battlegrounds and can be used to breed new Axies or sold for money. AXS is used for voting on intra-platform governance, in-game payments to purchase property, creatures, and other assets, and steering for annual profits of up to 40%.
The Sandbox
Among the most successful GameFi releases of 2022, The Sandbox is also built on the Ethereum blockchain and uses an open-world concept like Minecraft or Roblox. The main difference is that it’s metaverse-powered. We touched on the game briefly in our article on buying land in the metaverse.
The gameplay involves designing games, building virtual worlds, and organizing adventures. The main in-game resource is LAND, a piece of virtual land in The Sandbox Metaverse in the form of an NFT. These pieces are where users build their worlds and stories or design their assets. All built or collected assets can be sold for profit or used for passive income. The game’s token, SAND, can be used to buy assets and even exclusive tickets to metaverse events.
Splinterlands
Splinterlands is a strategy-driven game where players collect and trade cards, each of which is an NFT with a function and value. The game’s main token, Splintershard, is used for trading cards on the marketplace. There are also DEC tokens that work as rewards and let players buy exclusive and rare in-game items, while Credits are used to buy and rent cards.
While Splinterlands is based on the BNB Smart Chain, it is also compatible with other blockchains like Ethereum, WAX, and Tron. The game is free at the basic level, and players can choose to play for money or fun.
DeRace
DeRace is another Ethereum-based game that shows the wide range of interests represented among GameFi titles. If the games covered above seem to be for hardcore gamers, DeRace is meant for horse racing enthusiasts. Players win rewards by participating in metaverse horse races that feature NFT horses with unique characteristics.
Players need some amount of DERC, the game’s token, to pay the entry fee and to breed horses with race-winning traits. Participation in a race also requires an NFT racehorse to be in your stable. There are massive earnings available for racing, breeding, renting, trading, and betting on horses, along with options to stake DERCs.
StepN
StepN is a Solana-based game that proves that GameFi can attract even non-gamers. In StepN, users win GST or GMT tokens simply for moving around. These tokens can be traded for other cryptocurrencies.
To start playing, users need a pair of in-game sneakers (a form of NFT) that can be chosen from various types meant for activities like walking, jogging, training, and running. Each sneaker NFT type unlocks a different energy potential. Once that’s done, users just need to take their mobile, step out, and begin earning rewards.
Final Thoughts
Powered by decentralized finance and blockchain technology, GameFi represents gaming in a completely new avatar. The growth in areas like the metaverse and Web 3.0 makes the wider adoption of GameFi even more likely. However, success will also depend on timely efforts to iron out infrastructure, game design, and policy issues. In any case, at the user level, GameFi will continue to offer both potential benefits and risks. Thus, as with any other investment, extensive research beforehand and caution while engaging with a platform will help users avoid losses.
